Information and Consulting

Thursday, August 30, 2012

They are still going up, and according to one report –
Everywhere! With pent up demand and a growing population this is not a shock.
And considering little things like the number of college graduates every year,
growing families, and a new term I want to invent, “Emerging Adults,” it's just demographics. Sure there are young adults living with mom and dad and the overall hot apartment
market (and rising rents) to confuse the numbers and absorb these demographics, but
demand is growing. As we climb out of this disaster look for substantial
increases in both new home and existing home prices, and don’t be surprised by dramatic
increases by 2014. Here are a couple of interesting articles:

The Shakespearean tragi/comedy that is General Growth
Properties (GGP) continues. After the largest bankruptcy in financial history,
the unceremonious dumping of the family that built the company, and the
takeover (with 42% ownership) by Brookfield Asset Management, Inc., it is still a ship trying to find a port. The man who
kicked this all into gear and helped resurrect it from the dead was Pershing Square’s
Bill Ackman (10% ownership). There is too much history to go into (the following sites
will help if interested), at least for now. But Ackman wants GGP to essentially
sell itself to Simon Property Group or some other entity. If Simon absorbs GGP
there will be a major shift in the retail firmament. My guess is that many national
retailers are holding their collective breaths. The stock holders may be happy
but the consumer may be in for another surprise.

High-Speed Rail is like the strange aunt that lives in
the basement, you know she’s there, she won’t leave, and you hope she doesn’t
come upstairs when there are guests, especially in California. After November
all sorts of things may happen. In one scenario HSR will be dead as a doornail,
in another it could be like suddenly declaring the end of Prohibition. You
choose since it will be based on your choice and your money. The old saw, “Throwing good money
after bad,” comes to mind. In 1938 you could take a train (steam driven) from
New York to Chicago (the 20th Century Limited) in 16 hours – exactly. And more
often than not it ran exactly on
schedule. This is the train that made famous the term “Red Carpet Service.” Elegance
and style also made it famous – the scene in North by Northwest with Cary Grant and Eva Marie Saint was shot on that
train. Today Amtrak (using the same route) takes from 18 to 27 hours (and the
last is direct!). And I’ve heard you should safely double it. I give up; go
build the dinosaurs, pad the union labor ranks, buy the trains and engines from
China and France and who knows where else. The rails will probably be rolled in
China, the only small bit of pleasure will be knowing the natural gas used to fuel
the power plants will be American.

And lastly thanks, as always, to Aaron Renn (GO HERE) , for the following videos. Every city
should market itself, brand itself. Here is Memphis, Tennessee’s shot, followed
by Dubai. Just think about it.

Friday, August 24, 2012

I have been wondering (a lot) about where growth and development will happen as we move from this cycle of collapse and retreat. I won't be pointing fingers or shaking my fist at the stars - too easy and accomplishes absolutely nothing. For this session let's just lay back on the couch and think a little about the future.

Obvious Trends:Currently there are strong regional growth areas, such as Silicon Valley and other high tech areas that will continue to add jobs and more importantly entrepreneurial growth - from little acorns come huge oaks. While sadly I think that most tech manufacturing will still be outsourced overseas, the intellectual capital side will significantly support residential growth and the expansion of nearby existing research facilities. But housing will not be cheap, if anything, too expensive. I am also seeing sales of once high-tech land rezoned into residential use in these same markets - this is market driven as home prices continue to rise. The first builders in are the big regional players followed quickly by the national public companies.

Retail is in turmoil. After almost twenty years of building too much square footage there is a strong sense that this retrenchment (i.e. selling off malls for other uses, converting urban retail to multi-story residential) will have ongoing and serious effects on existing retail centers. The two major players, Simons and GGP are fighting it out in the marketplace with rumors of acquisitions and privatizations. There are too many big box retailers cannibalizing their own markets. Regardless of the "green mindset" people will drive to buy. Look for a return to and growth of well supported and "improved" older downtowns. Retail will continue to be more than loading up the SUV at Costco (but don't short their stock either).The Boomer market is a head-scratcher. While there is a strong, albeit small, retirement community market - many of these are too remote to be effective. The days of the huge Del Webb communities are probably gone, they will be more modest and actually focused on one particular regional submarket such as south and west side of Chicago, affordable areas of New Jersey, the nearer suburbs of the San Francisco Bay Area. Most Boomers still want to be near their children and grandchildren but an international airport as well. The "urban" life is not for most of them, but think urbane. I also think there is a huge opportunity to develop dense and well amenitized senior neighborhoods with attention to great security and medical support. The things that scare most older people are being alone, ill, and forgotten. Senior and assisted living communities (at all economic levels) can provide these comforts. A good model is Sunrise - but costs are very expensive. This will be a big, big, political issue. Far more then even today's medicare debate, just wait and see.Look for more and more assisted living communities - this doesn't take a genius to figure out. But they are still more often than not mom and pop operations. I see trends to larger and more resort oriented assisted living facilities. Not everyone is senile and bed ridden - at some time we will all need just a little more help.What I also hope to see is more regional and sub-regional support for transit systems. This mania for high speed rail will pass as urban areas suddenly realize that the funds they desperately need are going to remote and underutilized areas. Look for expansions of systems such as BART and other Metro lines. One impact is the blowback form neighborhoods faced with freeway widening - they will not except it. The days of stacked freeways are a long time, if ever, away.

And lastly (as noted in last week's blog) look for renewed pushes into the regional edges. Land is cheaper (and way cheaper today than five years ago). This helps to support the primary reason for this edge growth - better and less expensive housing. It drives the enviros and pols crazy - but as always the marketplace will win out in the end. Stay Tuned . . . .

Friday, August 17, 2012

Is that a change in the business climate I smell? While generally
trying to survive my fourth economic decline and/or disaster, I begin to look
for signs of recovery. Not the usual evening guesses and speculations on the
evening news and CNBC. (Remember they have hours to fill and would as gladly change
their minds from one day to the next as change their hair styles.) No, I look
for the most important aspect of a change in the trend of business,
speculation.

By this I simply mean when developers go outside the norm and look
beyond the next six months. In land development (a business that can make you
old before your time, as well as very rich or very bankrupt) it is speculation that
drives the market. A large project, whether a high rise or master planned
community, can take a minimum of five years from inception to development. Sure,
smaller projects can move more quickly, but in today’s regulated environment, a
master planned community or even a dramatic high rise, has to bridge many cycles. It is the mad rush to stay
within the timing of a particular market or at least try to open the project
during better times that claim's success.

Example: My planning firm was in the middle of master
planning at least twenty communities within California in 2006 and we had at
least ten others in early conceptual stage. These totaled at least 50,000
residential units along with retail and commercial support. Only one of these
developments has moved glacially forward, all the others were pure speculation,
none survived. If there is one aspect about land use speculation that separates
the weak hearted and weak minded is knowing when to pull the plug and not renew
that option; when to shut the doors, fire the consultants, pack, and go to
Hawaii. Some did, some didn’t. Some survived, most didn’t. Land speculation is
not for the faint of heart or those with a short term view. It is a world of
fools with deep pockets and endless optimism. As I said they are a rare sub-species.

That scent on the wind is the return of the speculators.
And I don’t mean the high-speed rail people and the giant water tunnels under
the Sacramento Delta crowd, or even the extensions of mass transit systems all
driven by bonds and politics. What I mean is that small office in the back with a couple
guys sitting around and sniffing the same change in the climate and saying, “Why
not!”

These are people that you won’t find on the monthly
business reports published by the government and dutifully analyzed on CNBC and
Bloomberg. These people are below the radar spending small sums to hopefully
garner big returns. They may be still holding options on large tracts of land
(held tightly during the last five years) or they may be knocking on a farmer’s door this afternoon. They are the ones that can connect the dots.

These people are a strange lot. They see the future
differently. They seem to be more immune to the foibles of the short term market
place and in fact may not even care about the next six months. Their story is out
there three or four years from now when the market comes back. They will be ready
with entitled land and paved streets. They rolled the dice and didn’t look. It
was the roll of the dice that excites them, not the dots. That’s why some of
the poster kids for this sub-species are men like today’s Donald Trump and in the past, Del Webb. One of my
favorites and most inventive was James Rouse who developed Columbia in Maryland and
Faneuil Hall in Boston (along with other iconic communities).

Since the first development plans were drawn up by the
Virginia Company in the early seventeenth century, speculation has driven the
economy of the Colonies and the United States. It is found in the planning of
Savannah, Georgia, the design of Llewellyn Park in West Orange, New Jersey, and
in Riverside, Illinois.

They are picking up the dice and shaking them, the
speculators are coming back.

By the way, in the upper left column is my thriller Toulouse 4 Death, is has been selected as a thriller finalist for the Global Ebook Awards. I will find out if I win tomorrow night in Santa Barbara, wish me luck - and buy the book, you'll love it!

Friday, August 10, 2012

I have blogged a number of times during the past few
years about the impact of housing on the economy. Not just the final
house sale but the flow-through impact as well, in fact this may be more important to the overall economy
than the final act of the sale (GO HERE).

This article in Builder
Magazine (GO HERE) has again pointed out the profound impact of the housing industry on the
economy. This wide ranging review of the impacts of housing on regions, home improvement,
and employment is a good read.

Less in More:

For some reason the press, especially in San Francisco
and New York, has fallen in love with micro-apartments. These apartments,
which are only 300 square feet, are the latest craze in urban development (GO HERE). Considering that a standard room at a Hampton Inn
is about 330 s.f., what we really are talking about is a monthly hotel. And Hampton Inns serve breakfast. Remember, much of this is result of the number of high tech workers moving to these
cities and the high cost of apartments. But, that aside, this trend is really to find a way to maximize
the return on expensive urban land. Rents are expected to be in the $1,500 per
month range. In the example sighted in the article, 23 units times 1,500 is $34,500 per month, or $2.92 per square
foot, which is inline with the norm for larger apartments in the region. But
the return for the lot under the building is $9.20/sf per month ($110.40/year), not bad.

But do you want to live in an apartment that is not much
larger than your dorm room (even with the kitchen and bath included)? This kind
of living will really make you pare down your stuff as our late great critic of
society George Carlen said:

STUFF!

Foreclosures:

Couple of other short notes: We are finally getting to
the last quarter on foreclosures, after this there will be clear sailing into the
world of increasing homes prices and increasing interest rates. We have built
so little new housing these last four years that it is inevitable that we will
see prices increase, especially in those areas near high end jobs and better
off urban districts (San Jose, New Jersey, Connecticut, high tech areas of the
south, and of course Texas). I am of the opinion that this trend of increasing prices
actually brings more buyers into the market, not less. It is the “not-to-be-left-behind” mentality. But remember what happen last time we had rampant price increases and a fast and loose banking system.

Banking in Today's World:

And having just recently refinanced through Wells Fargo I
find this to be interesting:

Wells Fargo & Co.’s grip on the
U.S. mortgage market has tripped alarms among regulators and lawmakers
concerned that the bank’s control over one of every three new loans could hurt
consumers and undermine markets.

Wells Fargo and its two largest rivals,
JPMORGAN Chase & Co and U.S. Bancorp, made half of all U.S. home loans in
the first half (of this year), according to Inside Mortgage Finance, an industry publication.
Wells Fargo alone controlled 33.1 percent. In mortgage servicing, which
involves billing and collections, four firms have 50 percent of the business,
and Wells Fargo is No. 1 in that field, too, with 18.5 percent. (GO HERE)

While I am one of the first to admit that the mortgage
banking industry is a miasma of bizarre and strange rules, regulations,
requirements, secret handshakes and looking over the fences. I always find it
discomforting to think of such large chunks of any industry falling into the control of
a just a few companies.

The Sergeant Shultz Defense: "I Know Nothing"

And lastly, as somewhat of a final candle on the cake,
the Wall Street Journal reported today that the U.S. is not seeking charges
against Goldman Sachs (GO HERE). After a yearlong investigation our Justice Department said Thursday
that it won’t bring charges against Goldman Sachs Group, Inc. or any of its
employees for financial fraud related to the mortgage crisis. Well that is
fully expected and this will give you an idea why (GO HERE). Info Note: they did pay fines of a half a
billion to end a mortgage fraud suit, but then again smoke doesn’t always mean there is
a fire. BTW, Henry Paulson, past Treasury Secretary, was a former CEO of
Goldman Sachs, just to throw that in. Side Note: memory in politics is long, the
second highest contributor to the Obama campaign in 2008 was Goldman Sachs (GO HERE).

Friday, August 3, 2012

With all the embarrassing comments in the press these
last few days about the State of California finding millions of dollars in the
secret and some not too secret accounts, it begins to make you wonder. Almost two
years ago I ran across a list of all the state agencies at the time. (The
following is a reprint of a portion of that blog.)

From October 22,
2010

Currently the State of
California has over 520 caucuses, commissions, associations, departments, divisions,
boards, bureaus, agencies, networks, councils, courts, and authorities as well
as universities, and the senate and assembly. Within each of these there are
innumerable programs and sub-committees. Without expanding or stretching the
imagination at least 75 of these agencies have a direct involvement with
housing and development within the state. Some have almost veto-like control
through the morass of approvals. For your entertainment listed below are these
agencies, be advised: each has a director, staff, programs, and attendant
consultants in the private side (you can skip it unless you need to take a
nap).

Without a doubt some
of these are necessary for the future of the state and well managed growth.
Some continue to meddle and offer ordinances, controls and “guidelines” that
contribute nothing to the efficient course of development in the state. The
market does as good a job of determining the quality of a project more than a
staffer in some small cubicle in Sacramento.

Now I ask you, is all this necessary Mr. Brown? How many
have rainy day funds, office supply funds, just in case funds, and forgotten mattress funds that
have hidden away our taxes? How can you be serious about a tax increase
when many of these agencies continue to be funded and survive?

And with the looming specter of High-Speed Rail and its
numerous subcommittees and associated commissions, are we in for even more
shell games in the future?

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About Me

Greg was born in 1949 in Traverse City, Michigan. Raised near Chicago he moved to California in 1971. The son of a journalist and entrepreneur, Greg has never forgotten his roots; his non-fiction work has focused on the Midwest region. Californian by choice, Mr. Randall makes his home in Walnut Creek, California with his wife, constant companion, and business partner. His preferred fiction genre is mystery/thrillers and historically based novels.